When it comes to paying off your debts, several options lay ahead of you. However, you find it quite hard to make the decision which best suits you. It all depends on what you want after the problem has been solved. It’s important that you are able to identify the right program for you.
What Are Your Options?
It varies from person to person on what will the best option form them be. There is no fixed solution that could cater to everybody. Some people are so fed up with their debt problems that cannot stand the stress any longer. When you know there is no way to improve your financial position you can go for bankruptcy!
However, some companies have an image and reputation to maintain. They require a good credit score for their financial goals which means that they want a debt solution what would not damage their credit report. For example if they want to buy a house, they would require a good credit rating. In such situations, debt consolidation becomes the best solution because it does not ruin your reputation.
Benefits of Consolidating Credit
Credit card debt is bad because it is accumulated really fast. This is due to the high amount of interest. People who pay only the minimum balance will be stuck in it forever to complete their payments because the balance keeps on adding up and the interest is accumulated making it worse.
Consolidating credit is a better solution for such people. Although it is not a debt reduction scheme, still it relieves your stress to a minimum level. Here is how debt consolidation can help you out:
- Consolidating credit lowers monthly contribution
- It lowers the rat of interest
- It combines your debts resulting in a single monthly payment
- You are facilitated with a longer payment period
- A healthy credit rating can be maintained
Few important things to understand about these advantages are that how they actually work. These benefits are connecting to each other one way or the other.
- Debt consolidation allows you to increase the payment period and lower the rate of interest, thus resulting in a lower monthly contribution. Keep in mind you still have to pay full amount but in a longer time span. Sometimes interest rate is not lowered, instead other options are provided for compensation.
- All a debt consolidation does is to merge or combine your payments as a single payment. Therefore you don’t have to get in the hassle of dealing with multiple lenders which relieves most of your stress. When you have to pay a dozen companies separately, you often get late in your payments which indicates a penalty charge of around $35. Additionally, amount due is added to the balance and the new balance is used to calculate the interest rate. When the new, higher interest rate is applied to calculate next month’s debt, you see a tremendous increase in your debt. Moreover, late payments make your credit score weak.
- Consolidating credit helps you to combine your payments and this makes it easy to monitor. You can concentrate on your income so that you can pay debts.
You Need To Qualify For Credit Card Debt Consolidation
You have to meet certain criteria in order to consolidate your debts.
A stable job
As this is a long term process, you need to have a steady job to make your payments. It takes even more than five years for people who have secured loans to pay for their credit card debts and mortgage. As we mentioned earlier, this is not debt reduction! The lower monthly payments are because you increase the number of months. So you need a stable income to make payments for next few years.
Qualify for lower rate of interest
- Obtaining a low rate of interest depends on your debt consolidation method. If you have a good credit score, you can obtain a zero interest rate when you use balance transfer. However, this would last for only 6 to 18 months.
- Another option to get a lower interest rate is to be a low risk borrower. To get an unsecured loan, you need just a good credit rating. Whereas a collateral will be required for those who merge their credit card and mortgage balances.
- If you don’t qualify you can just negotiate through a credit counselor who can get your lender to agree on reasonable terms.
If you hire a debt management institution, make sure it is accredited by a reputable organization such as Better Business Bureau (BBB) so that you don’t get into wrong hands. You can also carry out a background check to be sure as you would not want to worsen your financial problems. Consider all options and go for the most suitable option for your crises.